Lalor v. Yetter — 34 N.Y. St. Rep. 63

Majority

p. 63

William S. Lalor, Resp’t, v. Andrew B. Yetter, App’lt.

(City Court of New York,

General Term,

Filed December 1, 1890.)

Headnote

•Bills and notes—Evidence.

In an action on a promissory note it appeared that plaintiff received it after maturity from one P., who received it from the payee in part payment of an antecedent debt. Defendant offered to show that the note was given in part payment for a patented article and an exclusive license to use it in a certain territory and that he discovered afterward that the payee had previously given a license for said territory to another person. The evidence was excluded and a verdict directed for plaintiff. Held, that the rejection of the evidence was error.

The action is on a promissory note for $300 made by the defendant to the order of J. Howard Burnham. The note with $300 cash was given by the defendant to Burnham for a carpet beating machine and a license for using the same within the territory bounded by the Hortli and East rivers, and Fifty-second street on the south and Sixty-second street on the north in the city of New York. Burnham claimed to be the sole agent of one Foster, the patentee of the machine. Upon receiving the $300 cash and the note in suit, Burnham delivered to the defendant a license for the territory described, representing that he had the exclusive right to grant the license for said territory. Thereafter the defendant discovered that Burnham had previously given a license to another person for the use of the machine, upon the same territory covered by the license to the defendant, and thus by his fraudulent representations Burnham procured the $300 cash and the note in suit from the defendant. Upon the trial the defendant offered to prove these facts, but the trial judge refused to permit him to do-so, and upon the opening of counsel stating these details directed a verdict in favor of the plaintiff. The plaintiff had previously proved that he received the note after its maturity from one Patten, who had received it from Burnham in part payment of an antecedent debt. From the judgment entered upon this direction defendant appeals.

Le Barbier & Brewster, for app’lt; J. F. Pendleton, for resp’t.

The application of the following settled principles of law require the reversal of the judgment appealed from.

(1.) Where a person is induced to sign or endorse a note by false representations he is only liable to one who takes the note in good faith and for a value. Hart v. Palmer, 12 Wend., 523 ; Stewart v. Small, 2 Barb., 559 ; Canajoharie N. Bank v. Diefendorf, 33 N. Y. State Rep., 389; First National Bank v. Green, 43 N. Y., 298 . As a general rule, the endorsement of a negotiable note is in itself prima facie evidence that the endorsee has paid value for it, but when the payee has procured the note by fraud, this presumption is rebutted, and the holder cannot recover without proving that he has paid value. 1 Dan. on Neg. Inst., p. 612; Edwards on Bills, 686; First National Bank v. Green, supra; Wilson v. Rocke, 58 N. Y., 642 ; Seymour v. McKinstry, 106 id., 240; 8 N. Y. State Rep., 580; Hale v. Shannon, 32 id., 1079.

p. 64

(2.) To entitle a party to the character of a bona fide purchaser, without notice of a prior right or equity, he must not only have obtained the legal right to the property, but he must have paid the purchase money or some part thereof, or have parted with something of value.' Clark v. Gallagher, 20 Howard Pr., 308; Morton v. Rogers, 14 Wend., 576 .

Receiving a note which has been fraudulently put in circulation merely as payment for a preceding debt, no new credit being given, and no security being discharged or relinquished, nor any new responsibility incurred, is not parting with value such as to enable the holder to enforce the bill against an accommodation party, or to hold it against a true owner, or to hold - it free of equities against his transferrer. Coddington v. Bay, 20 Johns., 637 ; Stalker v. McDonald, 6 Hill, 93 ; Farrington v. Frankfort Bk., 24 Barb., 555 ; Moore v. Ryder, 65 N. Y., 438 . See cases collated in 4 Lawson’s Rights and Remedies, § 1581.

Receiving negotiable paper in payment of a debt, giving a receipt for it and balancing the account on the creditor’s books, no securities being surrendered, do not constitute a parting with value. Spear v. Myers, 4 Barb., 445 ; Payne v. Cutler, 13 Wend., 605 ; Lawrence v. Clark, 36 N. Y., 128 .

(3) The purchaser of dishonored paper takes it subject to all legal or equitable defenses which existed against it in the hands of the person from whom he received it. De Mott v. Starkey, 3 Barb. Ch., 403 .

One who receives an overdue note is but the assignee of a chose in action, and takes only such title as was possessed by his assignor. Farrington v. Park Bank, 39 Barb, 645 ; Britton v. Hall, 1 Hilt, 528.

(4) Rejecting the evidence which would have defeated the right of recovery under the principles stated was error, for which the judgment appealed from must be reversed and a new trial ordered, with costs to the appellant to abide the event.

Mo Ad am, Ch. J., and Eitzsimons, J, concur.